Wall Street experienced a significant sell-off following a move by the Bank of Japan to raise interest rates, causing the yen carry trade to unravel. This led to Japanese stocks recording their worst day in decades, and fears of a recession were sparked in the US after a dismal jobs report in July. As a result, US stocks and bond yields plunged. However, encouraging economic data the following week helped the market recover some of its losses, with all three major indexes on pace for their best week of the year. The Dow, Nasdaq Composite, and S&P 500 all made gains, with the benchmark index fully recovering from the previous week’s decline and ending the month on a positive note.
The Cboe Volatility Index, also known as the fear gauge, fell significantly after reaching a peak the week before, indicating increased stability in the markets. Despite this, investors remain cautious as they prepare for the Federal Reserve’s upcoming meeting in September. The Fed will be closely monitoring economic data, including inflation readings and labor statistics, before making any policy decisions. Traders are currently betting on a potential interest rate cut in September, but there is uncertainty as some central bank officials have indicated a need for further progress in lowering prices before moving forward.
Economic data released this week showed signs of cooling inflation, with consumer prices rising less than expected and wholesale price hikes slowing down. Retail sales also saw a boost in July, indicating that the US consumer base is still strong and resilient. These positive reports may pave the way for a rate cut in September, although the extent of the cut remains uncertain. Traders have adjusted their expectations for a half-point cut to 30%, down from 51% the previous week, based on the CME FedWatch Tool.
The Russell 2000 index, which tracks US small-cap stocks, has seen an increase as traders anticipate a rate cut by the Fed. Small-cap stocks typically perform well following the first cut of an easing cycle. Before the Fed’s meeting, Chairman Jerome Powell is scheduled to speak at an economic summit in Jackson Hole, Wyoming, where he may provide insight into the Fed’s next policy move. Powell’s past speeches at the summit have led to market fluctuations, and investors will be closely watching for any signals regarding future rate cuts or economic policies.
In other news, crude oil prices have fallen after the Organization of the Petroleum Exporting Countries lowered its global oil demand growth forecast for the coming years. Corporate updates include Starbucks shares surging after announcing a CEO change, Walmart reporting strong sales and operating income growth, and Home Depot experiencing a decline in sales expectations and consumer spending on home improvement projects. The market continues to evolve, and developments will be monitored and updated as they occur.
